TMI Blog2019 (9) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasonable expenditure attributable for earning exempt income - HELD THAT:- We are not inclined to restore the matter once again to the Assessing Officer for determining the reasonable expenditure attributable for earning exempt income. The Mumbai Tribunal in the case of Shakuntaladevi Trade Investments Pvt. Ltd., v. ITO , [ 2013 (12) TMI 1579 - ITAT MUMBAI] held that disallowance u/s. 14A for the period before the A.Y. 2008-09 should be restricted to 2% of the dividend income. Also in the case of CIT v. M/s. Godrej Agrovet Ltd . [ 2014 (8) TMI 457 - BOMBAY HIGH COURT] upheld the order of the Tribunal in estimating the expenditure to the extent of 2% of total exempt income earned by the assessee - we direct the AO to compute the expenditure attributable for earning exempt income at 2% of the exempt income earned by the assessee during the A.Y.2007-08. Suo moto disallowance towards expenditure attributable for earning exempt income, to this extent, the expenditure shall be reduced from total disallowance and compute the balance disallowance accordingly. Validity of reassessment order passed u/s. 143(3) r.w.s. 147 - disallowance of deduction claimed u/s.36(1)(vii) being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the issue of allowance u/s. 36(1)(viia) in the reopened assessment, the issue thus in a way became consequential and should go back to the Assessing Officer for fresh adjudication depending upon the decision taken by the Assessing Officer in the original assessment proceedings which were set asid. Thus, we restore this issue on merits i.e. allowability u/s. 36(1)(viia) of the Act in the reassessment proceedings to the file of the Assessing Officer to decide afresh in view of our above observations. This ground is allowed for statistical purpose. - ITA Nos. 1801, 1802, 1803/MUM/2018 And 2231, 2232, 2233, 2234/MUM/2018 - - - Dated:- 12-7-2019 - SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR, HON'BLE ACCOUNTANT MEMBER Assessee by: Shri C. Naresh Department by: Shri Sushil Kumar Poddar ORDER PER C.N. PRASAD (JM) ITA.No. 2231/MUM/2018(A.Y. 1991-92) (Revenue s appeal) 1. This appeal is filed by the Revenue challenging the order of the Learned Commissioner of Income Tax (Appeals) [hereinafter in short Ld.CIT(A) ] in holding that refund shall first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced hereunder for the sake of ready reference: 4. Undisputedly for A.Y. 1988-89 the assessee is entitled to refund of ₹ 14.07 crores as per assessment order and interest payable thereon works out to ₹ 1.58 crores; thus total refund due is ₹ 15.65 crores. The Assessing Officer granted refund of ₹ 12.03 crores. The dispute between the Assessing Officer and the assessee is with regard to adjustment of refund; according to the assessee refund should first be adjusted against interest payable and only the balance amount shall be adjusted against tax refundable and in this process the balance refund due would work out to ₹ 3,52,28.442/- on which the assessee is entitled to interest u/s. 244A of the Act whereas the Assessing Officer calculated the balance refund clue at ₹ 2,03,99,541/-(tax component) and ₹ 1,58,28,901/- (interest component). Reason for such calculation was that according to the Assessing Officer no interest is payable on interest due in which event, even if there is substantial delay in interest payable, the assessee can be made to wait unendingly without payment of interest. Though, before the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omotion Organisation vs CIT (supra), wherein it was inter-alia held that in a situation where only part amount is refunded by the department, then payment of interest on the balance amount due from the department to the assessee, on a particular date, does not amount to payment of interest on interest. Their lordships, taking support from the judgment of Hon ble Supreme Court in the case of CIT vs HEG Ltd, observed as under: .......14. Matter was taken by the Revenue before the Supreme Court in the case of HEG Limited and the SLP was granted and civil appeal was registered. The Supreme Court thereupon answered the question against the Revenue in the following words:- Therefore, this is not a case where the assessee is claiming compound interest or interest on interest as is sought to be made out in the civil appeals filed by the Department. The next question which we are required to answer is what is the meaning of the words refund of any amount becomes due to the assessee in Section 244A? In the present case, as stated above, there are two components of the tax paid by the assessee for which the assessee was granted refund, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest element, which should have been refunded but is not paid. In another situation where part payment is made, Section 244A would be still applicable in the same manner. For example, if ₹ 60,000/- was paid on 31st March, 2013, Revenue would be liable to pay interest on ₹ 1 lac from 1st April, 2010 till 31st March, 2013 and thereafter on ₹ 40,000/-. Further, interest payable on ₹ 60,000/-, which stands paid, will be quantified on 31st March, 2013 and on this amount, i.e., interest amount quantified, Revenue would be liable to pay interest under Section 244A till payment is made.................... 3.6. The facts of the case before us are similar in the sense that here also only part amount was refunded in the first phase by the department and when the balance amount was paid by the department in the second phase, the assessee was entitled for interest on the balance amount of refund due. Thus, from the aforesaid observations of Hon ble Delhi High Court, we can say that it is not a case of payment of interest on interest. Thus, in view of these facts and aforesaid judgments, Ld Counsel contended that Ld. CIT(A) had wrongly applied the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us and thus Ld. CIT(A) committed an error in not following the decisions of the Tribunal of earlier years in assessee s own case as well as judgment of Hon ble High Court in the case of India Trade Promotion Organisation (supra). 3.9. Before parting with, we are reminded of a recent judgment of Hon ble Supreme Court in the case of Union of India v. Tata Chemicals Ltd. 363 ITR 658 (SC) wherein Hon ble Supreme Court has discussed at length about moral and legal obligation of the department to refund the amount of tax collected from the tax payers which was more than the amount actually due as per law, along with interest. Some of the useful observations are reproduced hereunder for the sake of better clarity in deciding the issue before us: 37 A tax refund is a refund of taxes when the tax liability is less than the tax paid. As per the old section an assessee was entitled for payment of interest on the amount of taxes refunded pursuant to an order passed under the Act, including the order passed in an appeal. In the present fact scenario, the deductor/assessee had paid taxes pursuant to a special order passed by the assessing officer/Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e observations of the Hon ble Supreme Court that it has been observed that whatever money has been received by the department, it ought to be refunded ex aequo et bono. It is a Latin phrase which means what is just and fair or according to equity and good conscience . Something to be decided ex aequo et bono is something that is to be decided by principles of what is fair and just. A decision-maker who is authorized to decide ex aequo et bono is not bound by legal rules but may take account of what is just and fair. Thus, if we decide the issue before us ex aequo et bono, then it would be decided by the principles of what is fair and just and not necessarily as per strict rule of law. Thus, since the statute itself has already prescribed a particular method of adjustment in explanation to section 140A(1), then justice, fairness, equity and good conscience demands that same method should be followed while making adjustment for refund of taxes, especially when no contrary provision has been provided. Under these circumstances and aforesaid discussion, we find that the judicial proprietary demands that order of the Tribunal of earlier years must be followed and therefore we direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T. Rules made disallowance u/s. 14A of the Act at ₹.12,88,06,598/- comprising of interest under Rule 8D(2)(ii) of I.T. Rules at ₹.11,66,06,598/- and expenses @0.5% amounting to ₹.1,22,00,000/- under Rule 8D(2)(iii) of I.T. Rules. On appeal the Ld.CIT(A) sustained the disallowance made by the Assessing Officer. On further appeal to the Tribunal, the Tribunal in ITA.No. 6631/Mum/2010 dated 18.01.2013 held that Rule 8D cannot be applied for the A.Y.2007-08 in view of the decision of the Hon'ble Bombay High Court in the case of Godrej Boyce Manufacturing Co.Ltd., [328 ITR 81]. Since provisions of Rule 8D have application prospectively and from A.Y.2008-09 but not for the Assessment Year under appeal i.e. 2007-08. However, the matter was restored back to the file of the Assessing Officer to work out the disallowance on some reasonable basis after calling for the details. We observed that while passing the consequential order giving effect to the Tribunal order the Assessing Officer once again applying Rule 8D of I.T. Rules computed the disallowance u/s. 14A of the Act. The assessee carried the matter before the Ld.CIT(A) and the Ld.CIT(A) following the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first round of litigation, we observe that the Tribunal held that Rule 8D has no application in view of the decision of the Godrej Boyce Manufacturing Co. Ltd., (supra). However, the Assessing Officer was directed to compute the disallowance on some reasonable basis. The Assessing Officer, however, feels that the logical and reasonable basis for computing the disallowance u/s. 14A of the Act is Rule 8D which in our opinion is misplaced, when once the Tribunal holds that Rule 8D has no application the Assessing Officer is not justified in applying the formulae laid down in Rule 8D as most logical and reasonable way to determine the disallowance. Further the decisions relied on by the Ld. Counsel for the assessee for the A.Y. 2005-06 2006-07 cannot be applied having held that the provisions of Rule 8D have no application for the A.Y. 2007-08. The other decisions relied on by the Ld. Counsel for the assessee in the case of Punjab National Bank v. ACIT in ITA.No. 5481/Del/2014 dated 03.01.2019 and ACIT v. UCO Bank in ITA.No. 1615/Kol/2016 dated 21.08.2018 also cannot be applied as these decisions have been rendered in the context of disallowance under Rule 8D r.w.s. 14A for the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of Hon ble ITAT for the same assessment year allowing the claim of the appellant. On merits assessee raised the following grounds: - 2.1 Without prejudice to above ground on jurisdiction, the CIT(A)ought to have allowed the claim of the appellant that deduction u/s 36(1)(viia) should be based on eligible amount as computed under the said section and not provision made in books as held by Hon'ble ITAT in ITA no. 6349/Mum/ 2010 dated 18.01.2013 for the same assessment year. 2.2 Without prejudice to the above contention, CIT(A) omitted to consider provision made in respect of debts though classified as standard assets that had arrears up to 90 days as provision for bad and doubtful debts for the purpose of computation of deduction under the said section. 2.3 The Ld. CIT(A) omitted to consider provision made for restructured assets as per RBI guidelines as provision for bad and doubtful debts for the purpose of computation under the said section. 17. Briefly stated the facts are that, the assessment u/s. 143(3) of the Act was completed on 31.12.2009 determining the income at ₹.1285, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. Subsequently, the Assessing Officer reopened the assessment by issue of notice u/s. 148 of the Act dated 28.03.2014 and the reassessment was completed on 26.03.2015 by re-computing the allowance for deduction u/s.36(1)(viia) of the Act on the ground that assessee made provision even for the restructuring of assets and standard assets which are not eligible for creating any provision. On appeal the Ld.CIT(A) sustained the action of the Assessing Officer in restricting the disallowance u/s. 36(1)(viia) of the Act by excluding the provision made for restructuring of assets and provision made for standard assets from the provision made for bad and doubtful debts. On reopening, Ld.CIT(A) held that since the appeal was disposed off on merits the relief sought challenging issue of notice u/s. 148 of the Act and reopening of assessment is only academic. 21. Ld. Counsel for the assessee submits that the assessment was reopened beyond four years from the end of the Assessment Year, even when there was no failure on the part of the assessee to disclose truly and fully all the information required for completion of assessment. Ld. Counsel for the assessee referring to the Pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.2013 had dismissed appeal filed by the department and held that deduction u/s 36(1)(viia) is to be allowed based on eligible amount calculated at 7.5% of total income and 10% of aggregate average advances of rural branches irrespective of the provision made in the books of account. 26. Ld. DR vehemently supported the orders of the authorities below. 27. We have heard the rival submissions, perused the materials available on record and the orders placed before us. In so far as the reopening of assessment is concerned, we find that the Assessing Officer has recorded the following reasons for reopening the assessment: - 1. The assessee company filed return of income on declaring total income of ₹.32,10,87,162/-. Order u/s. 143(3) was passed on 31.12.2009 assessing the total income of ₹.1285,86,81,238/-. 2. On perusal of assessment records, it was noticed that a provision for standard assets of ₹.136.00 crore and provision restructuring of accounts of ₹ 28.50 crore was made during the year. While calculating the eligible provision for doubtful debt (i.e. 7.5% of total income and 10% of the aggreg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se fully truly all material facts. Nothing has been brought on record to suggest that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of assessment. Therefore, in the absence of any failure on the part of the assessee to disclose fully and truly all material facts for completion of assessment, assessment cannot be reopened beyond four years from the end of the relevant Assessment Year in view of proviso to section 147 of the Act. 29. In view of the above discussion, we hold that reopening of assessment. u/s. 147 of the Act is bad in law and accordingly the reassessment order passed u/s. 143(3) r.w.s. 147 of the Act is quashed. Since, we have quashed the reassessment order passed u/s. 143(3) r.w.s. 147 the Revenue s appeal becomes infructuous and accordingly dismissed. 30. In the result, appeal of the assessee is allowed on jurisdictional point and appeal of the Revenue is dismissed. ASSESSMENT YEAR 2009-10 ITA.No. 1803/M/2018 [Assessee s Appeal] ITA.No. 2234/M/2018 [Revenue Appeal] 31. Assessee has raised the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer. 36. On a perusal of the appeal of the Revenue for A.Y. 2009-10 in ITA.No. 6922/Mum/2013 dated 17.12.2015, we notice that the Tribunal set-aside the issue of as to whether the deduction u/s. 36(1)(viia) of the Act is to be allowed as per provisions of the statute or based on the provision made in the Books of Accounts to the file of the Assessing Officer and directed to decide the issue in the light of the decision of the Tribunal Ahmadabad Bench in the case of DCIT v. Sarvodaya Sahakari Bank Ltd in ITA.No. 779/AHD/2011. We also notice that similar issue had come up before the Tribunal for the A.Y. 2005-06 in ITA.No. 6920/Mum/2013 in Revenue s appeal and the Tribunal by order dated 31.07.2015 following the decision of the Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala [272 ITR 54] upheld the action of the Assessing Officer. This decision of the Tribunal dated 31.07.2015 appears to have not brought to the notice of the Tribunal while disposing off the Revenue s appeal for the A.Y. 2009-10 in ITA.No. 6299/Mum/2013 dated 17.12.2015. 37. We also find that the issue before the Tribunal in original assessment p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income chargeable to tax has escaped assessment. Reason to believe can be on the basis of any information which comes to his possession or knowledge. This information is more than enough for any reasonable person to form a reason to believe that income has escaped assessment. In the instant case, the appellant after going through various documents of the appellant, previous records and factual data had come to a conclusion that the income has escaped assessment. The AO or any reasonable person in his place would not ignore or over look any factual or legal information which comes to its knowledge. If the AO is not satisfied with the reason, he would not have issued notice u/s.148. The very fact that reasons are recorded and notice u/s.148 is issued goes to show that the AO has applied his mind and satisfied himself about the reopening of the case. The reasons recorded are not vague and scanty but precise and concrete. In this case, the information has come on analysis of the factual data. There is no reason or occasion to disbelieve this information. Besides, what the Act envisages is that the AO should only have a reason to believe to reopen a case. He need not establish beyond d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depending upon the decision taken by the Assessing Officer in the original assessment proceedings which were set aside by the Tribunal in ITA.No. 6922/Mum/2013 by order dated 17.12.2015. Thus, we restore this issue on merits i.e. allowability u/s. 36(1)(viia) of the Act in the reassessment proceedings to the file of the Assessing Officer to decide afresh in view of our above observations. This ground is allowed for statistical purpose. 42. In the result, appeal of the assessee is partly allowed for statistical purpose. 43. Coming to the Revenue s appeal, the following grounds were raised in its appeal: - 1 On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in restoring the issue back to the file of Assessing Officer by following the consolidated order of ITAT in ITA No's 6921/M/2013 for A.Y. 2007-08, ITA No.'s 6980/M/2013 6922/M/2013 for A.Y. 2009-10 and ignoring the order of Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala v/s. CIT. 2. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in remanding the issue, o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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